To hear him talk about the economic challenges facing the entertainment industry, you'd think that Jeffrey Katzenberg, CEO of DreamWorks Animation SKG, would be worried. Still, sitting in a meeting room on the DreamWorks campus, surrounded by plush toys commemorating his company's biggest hits, Katzenberg speaks in a tone that borders on serenity.

"I tell people, 'Wherever you are today, this is the new great,'?" he says, a Kung Fu Panda doll looming over his shoulder. "The sooner you forget what you had, the better off you'll be."

Katzenberg's Zen-like calm is especially surprising, given that just weeks before, he'd learned that he was among the Hollywood victims of Bernard Madoff's Ponzi scheme. Both Katzenberg and his DreamWorks co-founder, Steven Spielberg, had millions tied up with Madoff, most of it money they'd set aside for charity and all of it probably gone. As Katzenberg speaks of the belt-tightening that is happening in Hollywood, it's hard not to wonder about his own belt.

"If you look at where you were last summer, and that's your measure of how you're doing, it's hopeless," he says. His words could also apply to life after Madoff, I suggest. Katzenberg nods. His loss was humiliating, he admits. "It's gone. It's finished," he says. He refuses to reveal how much "it" is, though public tax filings show his and his wife's foundation had assets of more than $22 million in 2007. "I'm as lucky and as blessed as I can be," he says. "Let's move on."

If only it were so easy. The names of Madoff's other Hollywood victims are still gradually and grudgingly coming to light. Cond� Nast Portfolio has learned that Arnon Milchan, the billionaire producer of such films as Fight Club and Pretty Woman, lost at least $18 million in the scam. (Milchan declined to comment.) Actors Kevin Bacon and Kyra Sedgwick, who are married, have acknowledged that they too were taken.

How did so many smart people get so suckered? By Katzenberg's own account, he had never met Madoff, never even heard his name. Katzenberg is not a member of the Jewish country clubs in Palm Beach and Minneapolis where Madoff and his agents trolled for investors. He doesn't move in the social circles of New York's Upper East Side to which many of the scheme's patsies belong.

The answer, it turns out, lies closer to home. Katzenberg and Spielberg, like many people on the top rungs of the entertainment business, relied on the services of a personal business manager. Madoff had apparently figured out what industry insiders have known for years: More than agents, more than lawyers, business managers are the financial gatekeepers to Hollywood's elite.

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Since Madoff confessed to spinning a web of deceit that bilked thousands of people, universities, and philanthropic organizations out of an alleged $50 billion, two West Coast business managers have been embroiled in the scam. One is Katzenberg and Spielberg's adviser Gerald Breslauer, who at 80 years old is widely revered as the dean of his profession. The other is Stanley Chais, 82, who has been helping prominent Angelenos invest their money for decades.

In addition to steering their clients to Madoff, both Breslauer and Chais reportedly have incurred huge personal losses themselves. But in Chais' case, at least, that shared misfortune hasn't prevented clients from suing. A magician and entertainer named Michael Chaleff was the first to file, accusing Chais, in a $250 million federal action, of "false, misleading, unlawful, unfair, and fraudulent acts and practices." (Chais would not comment for this story.)

Then, on Christmas Eve, screenwriter Eric Roth-who won an Oscar for Forrest Gump-sued Chais in Los Angeles County Superior Court. In a classic good news-bad news scenario, the 65-year-old scribe had learned on the same day he was nominated for a Golden Globe Award for The Curious Case of Benjamin Button, a drama in which Brad Pitt ages backward, that his retirement nest egg was gone.

"I'm the biggest sucker that ever walked the face of the earth," Roth told the Los Angeles Times soon after discovering his loss. But in his suit (the damages he is seeking are unspecified), he laid the blame squarely on Chais, charging that he collected "enormous fees" even as he ignored "red flags."

Part bookkeeper, part consigliere, the business manager first emerged in Los Angeles in the 1950s as the Hollywood studio system came to an end. Up to that point, studios had handled chores for the stars they kept under contract. Then, suddenly, actors, directors, and writers wanting to manage their press coverage had to hire their own help, a change that spawned the personal publicity industry. Similarly, for the first time ever, "talent" had to organize and account for their own money, and the business-management field blossomed to fill the gap.

From the beginning, business managers were more than accountants (or less, depending on your point of view). Anyone could put up a shingle and call himself a business manager; there was no test to take, no license to procure. Though many business managers were also CPAs, filing tax returns was the least of their duties. And there was another key difference: CPAs billed by the hour, whereas business managers took a cut of their clients' money-usually 5 percent.Then as now, business managers not only pay all their clients' bills, they advise on what houses they can afford and which banks to finance them through. Business managers buy the cars, the planes, and the boats; hire the gardener, file the nanny's taxes, and take care of estate planning; put wills in order and make sure pensions are secure. In the case of campaign contributions, chances are that the address filed with the Federal Election Commission is the business manager's, not the client's.

The nature of film and TV production has made business managers a necessity for many in the industry. It's difficult to keep one's financial affairs in order while, for example, shooting a movie for three months in a Bolivian jungle. It wasn't long, though, before nearly everybody, established and aspiring players alike, had a business manager. It was more than a convenience; it was a status symbol, proof that one was busy enough to have to delegate personal chores and well-off enough to need professional advice.

Michael Miskei is a forensic accountant who specializes in the divorces of wealthy clients, many of them in Hollywood. When it comes to business managers, he says, "there's a subtext to all of this that has to do with status and celebrity. It's very 18th-century France, the notion that they're not like the rest of us."

And in fact, Miskei adds, they're not. "Some of these people refuse to organize themselves. They have personal assistants to ensure that their errands are done. They have agents that book their work, managers who guide their careers, attorneys who look after them. They're used to having lots of handlers, a team of people to whom they delegate everything. So it's a natural fit for a business manager to come in and say, 'I'll take care of your financial life.'?"

By one estimate, Los Angeles is home to more than 50 business-management firms and countless one-person shops. The ease with which one can enter this quasi-profession means a lot of practitioners don't know what they're doing. (One of the more established business managers guesses that 90 percent of his competitors are subpar.)

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Still, the field probably offers the best access to celebrity nest eggs. I first learned this from Ryan Kavanaugh, who, in 1997, at age 22, launched a venture-capital firm that attracted a who's-who list of Hollywood investors: producers Jerry Bruckheimer and Jon Peters; Terry Semel, then co-chairman of Warner Bros.; Jonathan Dolgen, then chairman of Viacom Entertainment; and Jim Wiatt, the power agent who has since been made CEO of the William Morris Agency.

Then, poof, Kavanaugh's firm went up in smoke, prompting five lawsuits against him from irate investors who had lost money. While Kavanaugh may be an irresistible salesman, it is still surprising that so many of the entertainment industry's heaviest hitters had handed over their cash to a twentysomething kid with no MBA and little investment experience. When I asked Kavanaugh, now a movie financier, how he'd landed such big fish, he said it was simple.

"I got really close to a lot of business managers," he said. "It spread through them."

Still, those who wish to blame the business-manager culture for the Madoff-related losses should resist the urge. As one movie producer told me, "The story isn't the few that got their clients in; it's how many kept their clients out."

"Our job is to talk people out of those things that are in vogue but without any proven substance," says Howard Altman, a partner at the Beverly Hills business-management firm Grant Tani Barash & Altman (which, according to Federal Election Commission records, has actress Jennifer Garner and studio chief Jeff Robinov of Warner Bros. as clients, among others). "Many of our clients do not have the time, the ability, or the interest to meet the actual person who's going to execute the trade or structure the investment. In fact, their expectation is they've hired us to simplify the process so that they do not have to."

In sharp contrast to the East Coast, where people often bragged of their status as Madoff clients, in Hollywood, many clients didn't even know they had invested with him. According to more than one West Coast investor, their business managers provided them with account documents in which Madoff's name was never mentioned.

"I got statements four times a year. But they didn't list transactions, just a grand total and what our percentage return was," says one former television-marketing executive who lost all of her savings, $600,000, which she had invested in a Madoff fund.

Another Madoff investor, as far as she knew, had her $1.4 million pension invested with an amazing guy in New York who had gotten her 18 percent returns every year for the past eight years. Again, the statements she received did not specify where her money was invested."It just sounded too good to be true," says the woman's new business manager, who declined to be named. The client hired this manager just days before Madoff's scheme was revealed. "We had a lunch set up with the person who had put her in these investments, an investment manager she'd found through a previous accountant. And then the client received an email from him and told us, 'I had money with Madoff. All my money's gone.'?"

There's a saying in Hollywood: Publicists and agents come and go, but business managers are forever. Steven Spielberg, for instance, has been a client of Gerald Breslauer's for more than three decades. According to the Los Angeles Times, they first met in the early 1970s. After seeing Amblin'-a 24-minute film Spielberg had made while interning with Universal Pictures' editing department-at the home of Ray Stark, the legendary movie producer, Breslauer sought out the then-unknown director and offered his services. Soon, Spielberg was serving as Breslauer's conduit to young Hollywood.

By the mid-'80s, Breslauer and the partners in his firm, then known as Breslauer Jacobson Rutman, had formed alliances with Barry Hirsch, an entertainment attorney, and Michael Ovitz, one of the biggest agents in town. As Ovitz built Creative Artists Agency into the reigning talent mill for the film and television industries, Breslauer's practice grew too. His firm's clients included superstars Barbra Streisand and Prince; movie producers Jon Peters, Peter Guber, Jerry Bruckheimer, and Don Simpson; Fox Inc. chairman Barry Diller; and music executive Irving Azoff, among many others.

David Geffen, who was a Breslauer client for years, referred Michael Jackson, Bruce Springsteen, and other performers to the firm, which at one point reportedly controlled an estimated $750 million in assets. It was often described as Hollywood's premier management company. "Gerry Breslauer was the king," says a person who was close to clients who invested with him in the '80s and '90s. "His was the club everyone wanted to be in."

Precisely when and how Breslauer hooked up with Madoff is unknown. (Breslauer refused requests for an interview.)

A Spielberg representative confirmed that a charity the director founded, the Wunderkinder Foundation, had invested with Madoff and lost money, but gave no dollar figures. According to regulatory filings, Madoff's firm accounted for roughly 80 percent of the foundation's interest and dividend income in 2006.

It appears that for the past few years, Spielberg and Katzenberg were Breslauer's sole clients; this has at least limited the scope of the damage Madoff inflicted in Hollywood. Still, according to a longtime friend of Breslauer's, the mess has taken a toll on him that is both financial and emotional.

"He feels horrible about what this has done to the philanthropy of Steven and Jeffrey," the friend says. "He is a decent and ethical person. He's a real intellectual, not a scammer. He's no Broadway Danny Rose."

But that's no guarantee he's off the hook. In the wake of the revelations about Madoff's scheme, Greenberg Glusker, a top business-and-entertainment law firm (and home to famed Hollywood litigator Bert Fields), formed an investment-fraud group in late January. Its aim, says partner Michael Greene, is to recover assets if possible, to seek tax relief to protect against future loss and risk, "and to pursue such actions as may be appropriate against managers and others who were responsible for the decision to invest with the Madoff group."

"We have a lot of celebrity and Hollywood clients, as well as others, who have been affected," says Greene. "We've had quite a number of calls, though how many will result in significant action on our part is hard to judge. It could be a dozen; it could be double that."

Already, the federal suit against Stanley Chais is revealing how complex at least one Madoff tributary may be. In the complaint, Chaleff, the lead plaintiff, says he was part of a 50-member investment group called CMG that lost the $75 million to $80 million it gave to one of Chais' companies. In all, the suit alleges, Chais managed about 10 such groups of investors. (Screenwriter Eric Roth's suit in state court alleges that Chais lost "hundreds of millions of dollars" of clients' money.) Reed Kathrein, Chaleff's Berkeley-based attorney, is seeking to have the federal lawsuit certified as a class action.

But other Chais clients say they believe the business manager was as much of a victim as they were. "I don't believe Stan knew. I don't think he would do that to his wife and kids," says the former television marketing executive who lost $600,000 with Chais.

She adds that her late father, who was a writer for the TV shows Bewitched and MASH, among others, had invested with Chais when she was a child. No one in her family had ever heard the name Madoff until Chais' office called in December with the devastating news that their money was gone.

"I inherited this nightmare, which for years was a blessing," she says, adding that her losses have forced her to put her three-level hillside house, with 180-degree views of Universal Studios and the San Fernando Valley, on the market.

Chais did not return phone calls. His only public utterance came in the Jewish Journal of Greater Los Angeles: "Like everybody else who trusted and invested with Bernie Madoff, he betrayed my trust."